The Century's Guillotine Match
"What? Are you saying New Century Financial has gone bankrupt?"
"Not yet, Mr. President. Rumors of its impending bankruptcy are rampant. It's not baseless—its stock, which was in the $30 range just months ago, has plummeted to the $5 range. It's down over 10% today as well."
President Al Gore leapt to his feet at his chief of staff's report. Normally composed, he had every reason to be shaken now.
Montgomery Bank's collapse could be dismissed as a localized issue. The failure of a regional Alabama bank would cause chaos only within Alabama itself. That was why the state government could take the lead, with the federal government offering limited assistance, and the problem would be resolved.
But New Century Financial's potential bankruptcy was an entirely different matter. It ranked second in subprime mortgage lending volume. While Lehman Brothers held the top spot, New Century Financial commanded a share in the high twenties—only slightly behind.
"What's the reason?"
"As the economy enters a downturn, corporate and small-business revenues have declined. One consequence is the sharp drop in subprime mortgage yields. Many borrowers are struggling not only with interest payments but with repaying the principal itself."
"Because of the downturn? I know growth has fallen about 0.3% compared to the same quarter last year. That doesn't mean we're in negative growth, though. And yet you're calling it a bankruptcy risk?"
The chief of staff found himself short on excuses under Al Gore's pointed question. America's economy was the world's largest, after all. Even a 0.3% dip translated to tens of billions of dollars. Yet Al Gore's question carried weight. A 0.3% decline in growth rate simply meant the pace had slowed from the previous year—it did not mean growth had stopped altogether. Bankruptcy risk, however, suggested something far more severe.
Tracing the root cause led back to reckless subprime mortgage lending and indiscriminate investment in derivatives. As the scale of investments grew, leverage amplified returns—but it also magnified potential losses beyond anything anyone had anticipated. Even when internal warnings about the risks were raised, they were dismissed as the complaints of cowards or conservatives.
In that environment, the rise in delinquencies proved fatal. As Yoo Jae-won had noted, leverage worked both ways. Losses that could have been absorbed last year had ballooned beyond manageable levels. That was the heart of New Century Financial's crisis.
The plummeting yields on CDOs built on subprime mortgage bonds dragged down the underlying subprime bonds themselves. High-grade Class A bonds had once sold the moment they hit the market. Now even mortgage-backed securities (MBS) with actual housing collateral were hard to move. In such conditions, high-risk CDOs saw almost no trading activity.
Compounding the problem, investors who had placed funds with New Century Financial began withdrawing their money. The company, already besieged from within and without, posted its worst quarterly results yet, sending its stock into freefall.
"What should we do?"
President Al Gore directed the question to the Secretary of Housing and Urban Development seated beside him. The intent behind the question was already clear.
"We need to prepare for receivership proceedings," the secretary replied. As head of the department, there was only one answer he could give.
Jason, chairman of the Council of Economic Advisers, wore a visibly displeased expression. A devout neoliberal, he believed the market should be left to its own devices. Government intervention, in his view, only disrupted market order and created greater side effects. New Century Financial should therefore be allowed to fail or be acquired by another financial group—or simply dismantled.
Al Gore, however, sensed something deeply unsettling in the warnings surrounding both Montgomery Bank and New Century Financial. Especially Yoo Jae-won's repeated cautions since last year about an overheated housing market now carried undeniable weight. It was better to extinguish the spark before it became a wildfire that consumed everything.
Above all, the nature of the two crises differed. Montgomery Bank had collapsed after investing in subprime derivatives; the losses were its own responsibility. New Century Financial's troubles, by contrast, stemmed from home loans. Many borrowers had taken out mortgages in good faith and were diligently repaying principal and interest. If New Century truly went under, the fallout would be enormous. Creditors would begin seizing assets, and countless homeowners unprepared for immediate repayment could lose their houses. With the numbers already in the hundreds of thousands, President Al Gore could not simply stand by.
At the same moment—
"New Century Financial's bankruptcy crisis was on the timetable after all."
Yoo Jae-won had a highly confidential document open on his computer: the Master Plan. He had poured immense effort into creating it before his regression, yet the drastically altered future had rendered it largely obsolete. Still, the document's value remained incomparable. While the projected timeline had diverged completely from reality, the future knowledge and technologies it contained were priceless.
New Century Financial's crisis, for instance, had been detailed in one of the plan's appendices—though the document had stated outright bankruptcy rather than a mere crisis, and placed the event in 2007, not 2006. Anyone who had consulted the Master Plan could have made a fortune simply by shorting the stock when it was still trading above $30.
Yoo Jae-won, however, had already built an immense fortune without needing to do so. Seeing the entry for New Century Financial's crisis brought him only relief. That alone was a tremendous source of strength.
In truth, Montgomery Bank's collapse had genuinely surprised him. The White House had treated it as a peripheral matter, but to Yoo Jae-won it had been alarming. He had initially dismissed it as an early sign of the subprime crisis while heading to the party after the Mojave thorium reactor completion ceremony. Only after returning home and checking the Master Plan had the true shock hit him—there had been no record of Montgomery Bank's failure at all. The Master Plan had documented even the smallest details, yet no matter how thoroughly he searched, the event was absent. It did not appear even in the news library within his Memory Palace.
That had sparked genuine concern that the subprime crisis might unfold differently this time. Fortunately, New Century Financial's crisis had arrived on schedule, allowing him to breathe easier. At least one predictable landmark remained in an otherwise unpredictable situation.
Of course, it was tragic for New Century Financial's customers caught in the crisis.
Yoo Jae-won studied the Master Plan for a long while before closing it. He then re-encrypted the document, sealed it in his personal secure partition, and wiped the cache memory clean. Android OS security had already reached world-leading standards; even legendary hackers would never breach it. Still, the ingrained security habits he had developed since his regression made the extra steps automatic.
"That said, I can't figure out what Lehman Brothers is thinking."
After sealing the Master Plan, Yoo Jae-won opened Vincent Greenhill's latest Wall Street intelligence report. Since purchasing the massive CDO put options, Vincent had been sending updates whenever anything noteworthy occurred. While the intelligence team's reports were excellent, Vincent's were equally valuable.
This particular report focused on Lehman Brothers. Apparently sensing danger from Montgomery Bank's collapse, the firm had convened an emergency executive meeting. Yet its actions afterward defied common sense: it had doubled down on selling subprime mortgage derivatives.
"They're trying to swim against the current?"
Lehman was not buying put options. Its increased investments were concentrated in the same instruments where it already held long positions—effectively reinforcing its call exposure. It had also begun aggressively purchasing MBS, with volumes described as unreasonably large and aggressive.
MBS at least had collateral, making them preferable to CDOs, but they were hardly safe assets. If the housing market collapsed, collateral values would plummet and liquidity would dry up.
"Why are they doing this?"
Yoo Jae-won immediately accessed the financial data network and examined Lehman Brothers' trading records. While individual identities and exact volumes were anonymized, the patterns allowed for reasonably accurate inferences.
The next morning—
"They're planning to hold on by force until the end of October, then."
After staying up all night analyzing the data despite Tiffany's concern, Yoo Jae-won had arrived at a clear understanding of Lehman Brothers' intent: to artificially inflate the yields on its Class A CDOs. To that end, Lehman had poured $10 billion into the market in just three days. If it could survive until the end of October and prevent Yoo Jae-won from exercising his put options, then demonstrate to the market that both Yoo Jae-won and ID Investment had been ruined by the put-option bet, market sentiment would reverse.
"Gold, thanks to you the analysis went smoothly."
-It is my honor to assist.
Gold responded in its characteristically mechanical tone. Though the AI lacked genuine emotion, the statement would have been gratifying coming from a human. Tracking Lehman Brothers' capital flows alone would have taken Yoo Jae-won several additional days. With Gold's assistance—run in developer mode rather than standard mode—he had completed the work in roughly twelve hours.
Of course, this level of service was unavailable to ordinary Android smartphone users.
"Time will solve this too."
Yoo Jae-won had no intention of monopolizing Gold's intelligence. He planned to elevate the standard version to developer-mode capabilities eventually. For now, however, it remained impossible. The computational resources required to track Lehman Brothers' capital flows were enormous. Making such power universally available would require cloud servers with at least a thousand times the current processing capacity.
"Ah, my shoulders are stiff."
While Gold had done all the heavy lifting, fatigue had settled over Yoo Jae-won. Even a simple upper-body stretch from his seated position felt different. In his early twenties he could work at a computer for hours without tiring, but now, with his thirties approaching, each day brought noticeable change.
He took every supplement his parents, uncle, and relatives sent for his health, underwent regular medical checkups, and added nutrients that might be missing from his diet. Yet the passage of time could not be ignored.
"I should start exercising again."
His workload had increased recently, and his exercise routine had suffered. Deciding to get some sleep first and then work out, Yoo Jae-won rose from his chair.
Ding!
Unfortunately, the moment he lifted himself from the seat, an alert sounded—Vincent Greenhill's ID Talk message.
-Mr. Chairman, the federal government has announced it will begin receivership proceedings for New Century Financial. Reports in Washington indicate they have allocated a full $5 billion in support funds.
"What? Receivership?"
Yoo Jae-won sat back down, startled. Neither the Master Plan nor the news library in his Memory Palace contained any record of New Century Financial entering receivership. In the original timeline, the company had gone bankrupt and been liquidated without any rescue attempt. This was new.
The difference in temperament between the former President Bush and the current President Al Gore had apparently created this divergence. Because of it, Yoo Jae-won could not immediately decide whether allowing bankruptcy or pursuing receivership would be better.
Instead, another entity reacted instantly on his behalf: the financial markets, led by Wall Street.
The stock market, which had been trading sideways amid a tense standoff when the morning session opened, reacted sharply to the news of New Century Financial's receivership. It plunged vertically. By the close, both the Dow Jones and Nasdaq had fallen 3%.
The reason behind the market's pessimistic reaction was revealed later—and to Yoo Jae-won, it made no sense at all.